Freddie Mac 2012 Annual Report Download - page 233

quarter exceeds zero. The amounts payable for dividends on the senior preferred stock could be substantial and will have an
adverse impact on our financial position and net worth. To the extent we draw on Treasury’s funding commitment, the
liquidation preference of the senior preferred stock is increased by the amount of funds we receive. The senior preferred
stock is senior in liquidation preference to our common stock and all other series of preferred stock.
In addition to the issuance of the senior preferred stock and warrant, we are required under the Purchase Agreement to
pay a quarterly commitment fee to Treasury. Under the Purchase Agreement, the fee is to be determined in an amount
mutually agreed to by us and Treasury with reference to the market value of Treasury’s funding commitment as then in
effect. However, pursuant to the August 2012 amendment to the Purchase Agreement, for each quarter commencing
January 1, 2013, and for as long as the net worth sweep dividend provisions remain in form and content substantially the
same, no periodic commitment fee under the Purchase Agreement will be set, accrue or be payable. Treasury had waived the
fee for all applicable quarters prior to that date.
Under the Purchase Agreement, our ability to repay the liquidation preference of the senior preferred stock is limited
and we will not be able to do so for the foreseeable future, if at all. The aggregate liquidation preference of the senior
preferred stock will increase further if we receive additional draws under the Purchase Agreement or if any dividends or
quarterly commitment fees payable under the Purchase Agreement are not paid in cash (this quarterly commitment fee has
been suspended). We may need to make additional draws in future periods due to a variety of factors that could adversely
affect our net worth.
The Purchase Agreement includes significant restrictions on our ability to manage our business, including limiting the
amount of indebtedness we can incur and capping the size of our mortgage-related investments portfolio. While the senior
preferred stock is outstanding, we are prohibited from paying dividends (other than on the senior preferred stock) or issuing
equity securities without Treasury’s consent.
The Purchase Agreement has an indefinite term and can terminate only in limited circumstances, which do not include
the end of the conservatorship. The Purchase Agreement therefore could continue after the conservatorship ends. Treasury
has the right to exercise the warrant, in whole or in part, at any time on or before September 7, 2028.
Purchase Agreement Covenants
The Purchase Agreement provides that, until the senior preferred stock is repaid or redeemed in full, we may not,
without the prior written consent of Treasury:
• declare or pay any dividend (preferred or otherwise) or make any other distribution with respect to any Freddie Mac
equity securities (other than with respect to the senior preferred stock or warrant);
• redeem, purchase, retire or otherwise acquire any Freddie Mac equity securities (other than the senior preferred stock
or warrant);
• sell or issue any Freddie Mac equity securities (other than the senior preferred stock, the warrant and the common
stock issuable upon exercise of the warrant and other than as required by the terms of any binding agreement in effect
on the date of the Purchase Agreement);
• terminate the conservatorship (other than in connection with a receivership);
• sell, transfer, lease or otherwise dispose of any assets, other than dispositions for fair market value: (a) to a limited
life regulated entity (in the context of a receivership); (b) of assets and properties in the ordinary course of business,
consistent with past practice; (c) of assets and properties having fair market value individually or in aggregate less
than $250 million in one transaction or a series of related transactions; (d) in connection with our liquidation by a
receiver; (e) of cash or cash equivalents for cash or cash equivalents; or (f) to the extent necessary to comply with the
covenant described below relating to the reduction of our mortgage-related investments portfolio;
• issue any subordinated debt;
• enter into a corporate reorganization, recapitalization, merger, acquisition or similar event; or
• engage in transactions with affiliates unless the transaction is: (a) pursuant to the Purchase Agreement, the senior
preferred stock or the warrant; (b) upon arm’s length terms; or (c) a transaction undertaken in the ordinary course or
pursuant to a contractual obligation or customary employment arrangement in existence on the date of the Purchase
Agreement.
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